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US Forex-Rigging Litigation Potentially Set to Open the Floodgates in the UK

You may recall the forex-rigging scandal earlier this year when five global banks (Citigroup, JP Morgan, Barclays, UBS and the Royal Bank of Scotland) were accused by both US and UK officials of attempting to manipulate foreign exchange rates with a view to making substantial profits.

For those who may not be familiar with the topic, forex, sometimes referred to as FX or the currency market, is the trade of currencies and is by far the world’s largest market trading at $5 trillion-a-day. The forex market operates through various financial institutions as well as on several levels, from major financial firms to the everyday holidaymaker.

However, due to the complex international jurisdictional issues that arise when different countries’ currencies are traded, forex is largely an unregulated financial services activity which leaves the market open to potential manipulation. Manipulating forex is not easy although it can be achieved by changing the value of a currency, resulting in large profits to be made by firms such as those mentioned above.

In order to change a currency’s value, traders submit a large number of orders during what is known as the ‘fix’ (a five minute window where a snapshot of the market is taken which starts before and ends just after 4pm in London every day). This large rush of orders then skews the market’s impression of supply and demand for the currency in question and so changes its pricing value. Collusion between traders at various firms makes it easier to affect the value of the currency. Those who stand to suffer the most are the firms themselves who manipulate the market highlighted by the large fines they pay out. In addition, some of the banks’ clients stand to lose out as investments and pension funds could be adversely affected.

Earlier this year, the banks mentioned above were fined close to a combined total of $6 billion by the United States Department of Justice following an announcement made by US Attorney General Loretta Lynch. The investigations are still a long way from being over despite guilty pleas to financial criminal misconduct being entered by the five banks. However, various settlements that have been agreed recently in the US may now potentially open up the doors for investors to bring claims against the banks involved in the rigging scandal in the UK.

This is due to the reason that the banks who are settling are cooperating with claimants by providing them with important information that may be used to assist investors in advancing their claims in the UK against non-cooperating banks. As London plays host to a large portion of the forex market, it would make sense for the UK to be the next country to facilitate future litigation in this area of financial services law.

Although it may be too early to say with any degree of certainty whether redress schemes will be implemented or what the scale of the potential litigations could amount to, for those investors who may have been affected by this new scandal, it will be interesting to watch these legal developments as they may be likely to spread across to the UK in the near future.

Samson Yap is a paralegal in the group litigation department of Slater and Gordon Lawyers in London.